Canadian Credit Union Regulation: Provincial Regulation Is Strengthening and Aligning With OSFI

DBRS Morningstar published a commentary titled “Canadian Credit Union Regulation: Provincial Regulation Is Strengthening and Aligning With OSFI.” While the large Canadian banks dominate the financial sector, credit unions play an important role in serving communities, especially those that have been underserved. As these credit unions have grown in size and scope, they have begun diversifying their funding by raising wholesale funds, either through senior debt issuances or deposits sourced from provincial municipalities, universities, schools, and hospitals (MUSH). Accordingly, there has been increasing interest from investors as to how credit unions are regulated.

Key Highlights include the following:
-- While federal and provincial regulators are not perfectly aligned on various regulatory requirements, there may be increasing pressure for provincial credit union regulators to align with OSFI's more rigorous standards and guidelines as larger provincial credit unions seek more wholesale funding.
-- Positively, some provincial regulators have already sought to align themselves with OSFI requirements, but gaps remain.

While federal and provincial regulators are not perfectly aligned on various regulatory requirements, generally provincial regulators are aligning with OSFI as larger provincial credit unions seek more wholesale funding,” said Cheryl Saldanha, Assistant Vice President, Global Financial Institutions Group. “While some provincial credit union regulators do take a proportionality approach when drafting regulation, they will have to balance out what the bigger players want versus what may be too cumbersome for the smaller institutions.”